Applying for an IRS Payment Plan
Have you finished preparing your tax return and realized that you owe more tax than you can afford?
If so, you may be able to set up an IRS payment plan. These are agreements that allow you to pay off your tax on a monthly basis.
IRS Payment Plans
If you haven’t entered into a payment plan with the IRS in the last five years and you owe less than $10,000 in taxed then you may be entitled to a guaranteed acceptance.
However, you won’t be eligible for a guaranteed acceptance if you have filed any of your five previous tax returns late.
To apply for an IRS payment plan you have to complete form 9465 – Installment Agreement Request. When you fill out this form you have to show why your current financial situation makes it impossible for you to pay your tax liability by the deadline.
If you’re not eligible for a guaranteed acceptance you can still complete form 9465. However, the IRS may decline your request, especially if they believe that you are able to pay the tax that you owe by the tax deadline.
You should receive a response within 30 days if you submit the form with your tax return.
Paying your tax using a payment plan
There are two common ways of setting up a payment plan. Firstly, you can request a payroll deduction installment agreement, use Form 2159 – Payroll Deduction Agreement.
Alternatively, you can request a direct debit Installment Agreement, using Form 433-D – Installment Agreement.
Remember that even though your tax payment may have been approved by the IRS, paying your tax in the form of a monthly payment plan still means that you are technically paying your taxes late. So, you will be charged interest during the repayment period. You will also be charged a one-off user fee of $105 ($52 for direct debit arrangements).
It is therefore advisable for you to pay the total tax that you owe as soon as you can to avoid additional interest charges on your tax liability. The IRS themselves advise that ‘before requesting an installment agreement, you should consider less costly alternatives such as a bank loan.’
What happens if you owe more than $10,000 in taxes? Can you still set up an installment plan?
Joey – Yes you can. However, if you owe over $25,000 in combined tax, penalties, and interest you may have to complete a Collection Information Statement, Form 433F in addition to your form 9465.